Saturday, November 10, 2012

The American people didn’t much care last Tuesday, but Mark Steyn lays it out again: the Obama administration spent $5.60 for every $1 of
economic growth.

Anyone who thinks that government spending stimulates the
economy ought to take notice.

Steyn adds another important point, one that few care about,
namely, that for the government to function it needs to sell its debt at very
low interest rates. That means the world entire must maintain a ravenous appetite
for our debt. If not, bond prices will fall, interest rates will rise and the
government will be spending unconscionable amounts of money just to service the
debt.

So, Steyn asks, who is buying up all of our debt? Why, it’s our very own Federal Reserve. He reminds us that the Fed buys 70% of our debt.

Where does it get the money? Could it be that it is printing it?

Clearly, this means that the market for government bonds is anything but free. It also means that the government is running on fumes.

In Steyn’s words:

In the
course of his first term, Obama increased the federal debt by just shy of $6
trillion and, in return, grew the economy by $905 billion. So, as Lance Roberts
at Street Talk Live pointed out, in order to generate every $1 of economic
growth the United States had to borrow about $5.60. There's no one out there on
the planet – whether it's "the rich" or the Chinese – who can afford
to carry on bankrolling that rate of return. According to one CBO analysis, US
government spending is sustainable as long as the rest of the world is prepared
to sink 19 percent of its GDP into U.S. Treasury debt. We already know the
answer to that: In order to avoid the public humiliation of a failed bond
auction, the U.S. Treasury sells 70 percent of the debt it issues to the
Federal Reserve – which is to say the left hand of the U.S. government is
borrowing money from the right hand of the U.S. government. It's government as
a Nigerian email scam, with Ben Bernanke playing the role of the dictator's
widow with $4 trillion under her bed that she's willing to wire to Timmy
Geithner as soon as he sends her his bank account details.

Anyone who thinks that government spending stimulates the economy ought to take notice.

Worse than that, that $1 of "economic growth" only exists because our GDP statistic assumes a Keynesian model of economics in the first place by simply defining government spending as economic output, and counting it towards the GDP.

If the government were to just spend $10 trillion of debt money to pay a bunch of people to dig holes and fill them up again, our government statistics would show a massive uptick in so-called "GDP growth" even though wealth had actually been destroyed and peoples' time and energy wasted on nothing.

In reality, our economy is contracting, and while the spending is real, the supposed "growth" is a mere artifact of question-begging statistics.